Fundies expect further bids for Equinox

A tug-of-war is expected to develop over copper producer
Equinox Minerals
, after China’s Minmetals Resources put the company in play with a $6.3 billion bid on Monday.

The Hong Kong-listed metals producer offered Equinox shareholders C$7 a share, which was a 23 per cent premium to its April 1 closing price of C$5.71 a share. But at 11:15 AEST, Equinox shares were trading on the Australian Securities Exchange well above the offer price, at $7.28, up $1.57 or 27.5 per cent.

Fund managers said Equinox would draw the attention of the world’s big diversified miners – including BHP Billiton and Rio Tinto. They expect Equinox to be sold at a price significantly higher than the C$7 a share offer announced on Monday morning. Here is a summary of what the market is saying:

BT natural resources fund manager Tim Barker:

“There has to be the possibility of rival bidders. At the end of the day it throws another hat in the ring. The miner itself is clearly a tier one, long life, reasonable cost operation and it’s an asset that other people may covet.

“It’s an asset Rio Tinto would have to look at. Virtually everybody whose anyone in the resources industry has seen the asset, looked at it. You would have to include BHP, Anglo and Xstrata as potential interested parties.

“There is potential underlying [political] risk [for the rival bidders to the deal]. Clearly the Chinese will be funding this by debt, being a cash offer. It’s an intriguing move."

Northward Capital portfolio manager Michael Bentley:

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“I think there is a way to go with this bid and it will generate a bit more interest from other players in the market place. It’s a good asset and there are not a lot of those around in the copper world at the moment.

“People like Xstrata, Rio and any number of others around the globe would have to take a look but I am sure the big guys would be interested in it. It’s that sort of asset.

“I think this is day one of what will be an interesting story. You have just got to look at the way Lundin has developed. It’s always difficult to forecast how it will go but I think this is the first step. Equinox will go out and defend themselves, this won’t be good enough for the Equinox board and management, and then it will be interesting to see how what they do with their own bid for Lundin."

Constellation Capital Management investment analyst Peter Chilton:

“Having suffered through the bid for Lundin, which I think a lot of shareholders were not happy about, this could be quite a good exit price for [Equinox] shareholders still there. The bid is obviously a big lift from where the stock was on Friday and it doesn’t have to be the final bid either.

“The Chinese might have to raise the bid or there could be others out there. Both operations (Middle East and Zambia) have long mine lives. Now that it looks like Equinox is genuinely in play, someone else could come in as long as they are prepared to take the geographical risk of where the operations are. But if you want to be exposed to copper, you might have to take that risk.

“The share price where it is now, depending on your view of the long-term copper price, is quite a full price. I couldn’t imagine Rio Tinto going for something at an elevated price like this unless they were able to see some angle."

Pengana Capital portfolio manager Tim Schroeders:

“I thought China Minmetals would have been more aggressive before now in terms of their growth by acquisition strategy, so to see them surface now is not a total surprise given their intention to grow the business. Tactically, with the market polarised with the benefits of pursuing Lundin, it makes sense to move at this juncture.

“I’m not sure they [Minmetals] will get it for C$7. But stranger things have happened. There is a lot of time for this to play out and copper prices have looked a bit weak relative to other commodities in the past six weeks.

“I would be surprised if Rio got caught up in a bidding war for it. They have more than enough on their plate in terms of copper growth. The one caveat may be if they were to pursue a listed copper vehicle and back some of their copper exposure into it. I wouldn’t say the split would be their favourite option but it is not something you would dismiss out of hand either."